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Dayton mixes tax increases and cuts in budget plan

Minnesota Gov. Mark Dayton unveils his tax and spend plan for the next two years on Tuesday, Jan. 22, 2013. His plan mixes spending cuts and increases, along with tax cuts and increases. (Done Davis/Forum News Service)

ST. PAUL -- Gov Mark Dayton says taxes on average Minnesotans would not increase under the budget proposal he released at mid-day.

The plan includes a mixture of tax increases and decreases and it would spend more on education and jobs programs. It also cuts some specific programs.

Dayton's plan would increase revenues about $2 billion, with about half going to fill the state deficit and the rest to increase spending in areas such as education and jobs programs.

The Democratic governor released his proposal to a packed Capitol-area meeting room as the beginning of discussion for the two-year budget that begins July 1.

Minnesotans would pay taxes on clothing worth more than $100, rich Minnesotans' income tax would increase and property taxes would fall. Dayton said middle-class Minnesotans will not pay more tax.

Key to the Dayton budget is increasing taxes on the top 2 percent of Minnesota earners. His plan calls for increasing taxes for couples earning more than $250,000 a year and individuals with $150,000 incomes.

For instance, that would up taxes on 883 people in St. Louis County, 128 in Beltrami County, 185 in Clay County, 258 in Kandiyohi County, 94 in Nobles County, 234 in Goodhue County, 2,858 in Washington County, 185 in Douglas County, 67 in Hubbard County and 72 in Stevens County.

"The result of these changes in the income tax, sales tax and property tax would be to reduce the total state and local taxes paid by most Minnesotans," Dayton said.

While Dayton said the budget plan is the beginning of discussion about taxing and spending, legislative Republicans and Democrats agree the two-year budget for the cycle beginning July 1 will build off the Dayton proposal.

Dayton's fellow Democrats control the Legislature, and while they say there will be some disagreements with what Dayton wants, they generally agree with his ideas, especially raising taxes on the rich.

Republicans strongly disagree, saying such taxes will stymie economic development. However, they admit that Democrats can pass whatever budget they want.

Republicans only have a say in funding public works projects, which require more than a simple majority to pass.

Public works projects, funded by the state selling bonds, were not included in today's budget plan. However, a proposal is expected later in the year.

Dayton's proposal would reduce the sales tax rate, but expands the tax to cover most services that now are not taxed.

However, the proposal also would add sales taxes to businesses that sell to other businesses, which could be passed on to consumers. Dayton said he did not know how that would affect Minnesotans.

"This is the largest sales tax reduction in the history of the state," Revenue Commissioner Myron Frans said, while taxing most services in the state.

Car repair, haircuts and other services would be taxed. And businesses would pay sales tax on more items.

"For most Minnesota families, it is a wash," Dayton said, adding that the plan does not increase the sales tax but broadens it.

"It goes against my upbringing," Dayton said about taxing clothing. His family founded Dayton's department stores, which began the Target store chain.

"I am sure it will give rise to a good many $99.99 deals around the state," the governor added.

"You've got to tax somebody," Dayton said.

Dayton calls for increasing cigarette and tobacco taxes while reducing corporate taxes by 14 percent. He also would reduce a statewide business property tax. Cigarette taxes would rise 94 cents a pack.

Frans said a Beltrami County couple with a $57,000 annual income and a $133,000 home would not pay more income taxes and they would receive a $500 property tax rebate. He said they would not pay more sales tax.

Dayton emphasizes school funding in his spending package.

He suggests $118 million in new public school funding, which averages $52 per student, and $125 million more for special education. Early learning would get $92 million more, with all-day kindergarten receiving $40 million.

The governor wants to give the state's two higher education systems $80 million more each.

Dayton said that should allow the University of Minnesota and Minnesota State Colleges and Universities systems to stop the rapid tuition increases that have occurred in the past few years.

Commissioner Jim Schowalter of Minnesota Management and Budget said the average student graduates with $30,000 in debt, which is too much.

Another $86.5 million would go to a variety of economic development funds and $120 million more would be sent to cities and counties.

Dayton said the budget fits what Minnesota wants.

'"We need to put our money where our beliefs are, and where we know we can get results," he said.

Don Davis has been the Forum Communications Minnesota Capitol Bureau chief since 2001, covering state government and politics for two dozen newspapers in the state. Don also blogs at Capital Chatter on Areavoices.